Over the past few days I’ve discussed Japanese candlesticks patterns in Forex trading charts, today I will show you the first candlestick pattern, the morning star formation.
What is a Morning Star Candlestick Pattern?
A morning star candlestick formation forms at the end of a downtrend (it’s the bottom), potentially signaling a reversal into an uptrend.
A morning star formation, which includes three or more candles, is characterized by a larger bearish candle, followed by a small-bodied bullish or bearish candle (a spinning top or a doji), followed by a larger bullish candle.
In order to qualify as a morning star formation, the third bullish candle must close at or above 60% of the original bearish candle’s opening (counting the bottom of the middle candle as 0 and the opening price of the original bearish candle as 1).
As you can see in morning star picture below, a morning star formation can consist of more than three candles.
The defining characteristics are the initial larger bearish candle and a final larger bullish candle that closes at or above 60% of the initial bearish candle’s opening. In between those two candles can be a single doji or spinning top, or several.
You can confirm the morning star once the final bullish candle has formed.
If you identify a morning star and decide to trade it, buy at the opening of the candle that follows the morning star’s final bullish candle. Set your protective stop loss order at the last level of support (which will be the low of the morning star’s middle candle).
Trading morning stars can be particularly lucrative if you have a convergence (that is, the reversal implied by the morning star is further implied by a trendline or some other indicator).
In my next post, I will discuss the evening star Japanese candlestick pattern. Hint: it’s just like the morning star only reversed. It will signals a trend reversal, but this time it reverses from an uptrend to a downtrend. After that, I’ll introduce the tweezer top candlestick pattern.
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